A Toolkit to Assess the Consistency Between Real Sector and Financial Sector Forecasts

Sophia Chen (), Paola Ganum and Pau Rabanal

No 2017/009, IMF Technical Notes and Manuals from International Monetary Fund

Abstract: e develop a toolkit to assess the consistency between real sector and financial sector forecasts. The toolkit draws upon empirical regularities on real sector and financial sector outcomes for 182 economies from 1980 to 2015. We show that credit growth is positively correlated with real sector performance, in particular when credit growth is unusually high or low. However, the relationship between credit growth and inflation is weak. These results hold for different country groups, including advanced economies, emerging markets and low-income countries. Combining credit growth with other variables such as house prices and the output gap helps to understand real sector outcomes. But including the financial account balance does not make a difference.

Keywords: TNM; credit growth; price; real GDP; Macroeconomic Forecasts; Financial Forecasts; Consistency; Comovement; house price growth; credit condition; asset price fluctuation; equity price appreciation; GDP growth; Credit; Housing prices; Output gap; Financial sector; Emerging and frontier financial markets; Global (search for similar items in EconPapers)
Pages: 30
Date: 2017-06-05
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